CROWN CORK & SEAL IN 1989 Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

CROWN CORK & SEAL IN 1989 Case Solution

Question 1

Using the consolidated financial data for Crown, Cork and Seal, identify and post trends you think are both positive and negative for the company.

The consolidated financial data for Crown Cork & Seal Company has been provided in exhibits 7, 8 and 9. Along with the financial statements, there are also certain ratios which have been computed. Based upon the given consolidated financial statements from 1956 to 1988, more ratios have also been computed as shown in the excel spreadsheet and the growth of certain balance sheet and income statement items has also been calculated to identify the positive and the negative trends. These are identified and described below:

Positive Trends

The company is generating adequate return with respect to the equity investment of the shareholders. The highest return on equity experienced by the company was in 1966, 1977 and 1979 however currently, a good ratio of 14% has been maintained by the company. The trend shows that there have been minor fluctuations in this ratio. The return on sales ratio of the company is also on a positive trend and this shows that the current strategy and the margins set by the management are good enough to yield profits from each $ sale made by the company.

Similar is the trend for the return on average assets ratio with an average ratio of 718% maintained by the company over the years. Apart from this, the management has maintained a very high gross profit margin because the management has a strong control over its costs which could be seen by the trend of the costs of goods sold ratio. The management has also been successful in reducing its selling, general and admin expense as a percentage of sales significantly and it is currently also following a declining trend.

The debt over equity and the debt to capital ratio of the company both show that the level of debt has been declined significantly in the firm’s capital structure due to the successful strategy of Connelly. Due to the lower level of debt and lower interest payments, the interest coverage ratio is also following a positive increasing trend. These all trends point out the strong and the positive performance of the company and success of its strategies.

Negative Trends

Now if we focus on the negative trends in the consolidated financial data, then it could be seen that the working capital growth has been negative recently, however the requirement of working capital in $ terms has increased over the past years. This might be as a result of the rapid expansion of the company but as Connelly had shut down some of the costly facilities,therefore it should have decreased significantly.

The current ratio of the company has been following a declining trend which means that liquidity position has weakened for the company. Finally, if we focus on the growth of the sales, net income and total assets of the company, then it could be seen that the growth has been following a declining and a negative trend. This is alarming for the management. The management needs to look into the issues which are hindering the sales growth of the company and reduction in the net income....................

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